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Plan panel seeks Rs 5,000 crore fund to boost venture capital

Apart from setting up a Rs 5,000 crore 'fund of funds', a Planning Commission committee today recommended tax incentives and easing listing-exit norms for venture capital investors in the country.

business Updated: Aug 27, 2012 21:14 IST
HT Correspondent

Apart from setting up a Rs 5,000 crore 'fund of funds', a Planning Commission committee on Monday recommended tax incentives and easing listing-exit norms for venture capital investors in the country.

The proposed Rs 5,000 crore 'fund of funds', will seed early stage venture funds in the country to boost investment, said the report submitted to the finance minister here by a committee on angel investment and early stage venture capital set up by the panel.

The panel has asked the government to provide Rs 1,000 crore to 10 top academic institutions to set up Rs 100 crore on-campus incubators such as the ones at Harvard and Stanford.

According to the panel, the government should permit easy exit by allowing foreign listings and implementation of liquidation preferences for Category-I Alternate Investment Funds (AIF).

The expert group also pitched for income tax exemption for angel investor investing in the venture capital funds to boost the inflow of capital.

According to the panel, angel investors are those individual or their groups which invest in an unlisted entity at the seed stage. Such investment should not exceed Rs 5 crore by an individual and Rs 10 crore by their group.

It defines seed stage venture as a business with turnover below Rs 25 crore.

The committee also suggested the government to register angels or angel groups and enable them to get the benefits of pass-through taxation, 10 per cent long term tax on capital gains, and so on.

The panel also pitched for tax incentives for individuals and institutions investing in such funds. It asked the government to provide tax deductions to individuals and institutions that invest through angel groups or in early stage venture funds (as per SEBI definitions).

They said that Singapore government provides USD 80,000 tax deduction to such persons and bodies who invest through approved angels. In the US this deduction is provided for two such investments aggregating to USD 5,00,000.